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The effects of learning and signaling on money demand: With an application to heterodox inflation stabilization programs

Author

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  • Francisco J. Ruge-Murcia

    (Department of Economics, University of Montreal, C.P. 6128, succursale A, Montreal, PQ H3C 3J7, Canada)

Abstract

This paper develops a nonlinear vector autoregression of inflation and money growth subject to changes in regime. The regimes are fully characterized by the mean and variance of inflation and are conjectured to be the result of alternative government policies. Agents are unable to observe directly whether government actions are indeed consistent with the inflation rate targeted as part of a stabilization program. However, as part of their money demand decision, agents construct probability inferences regarding the regime. Government announcements are assumed to provide agents with additional, possibly truthful information regarding the regime.

Suggested Citation

  • Francisco J. Ruge-Murcia, 2000. "The effects of learning and signaling on money demand: With an application to heterodox inflation stabilization programs," Empirical Economics, Springer, vol. 25(1), pages 61-91.
    • Handle: RePEc:spr:empeco:v:25:y:2000:i:1:p:61-91
    Note: received: August 1998/Final version received: January 1999
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    Citations

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    Cited by:

    1. Salomon Marcelo F., 2001. "The Inflationary Consequences of Fiscal Policy In Brazil: An Empirical Investigation with Regime Switches and Time-Varying Probabilities," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 5(1), pages 1-17, April.

    More about this item

    Keywords

    Learning; credibility; government announcements; signaling; inflation; changes in regime; non-linear vector autoregressions; money demand;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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